Income tax initiative unconstitutional, former justice says

If voters approve Initiative 1098 – a measure that would impose an income tax on high earners to pay for education – the state Supreme Court would likely decide it is unconstitutional, a former justice says.

In an opinion written at the request of the conservative think tank Washington Policy Center, former Justice Phil Talmadge wrote that the measure “is clearly unconstitutional on the basis of existing case law. Its enactment will only guarantee protracted litigation to determine if the initiative meets constitutional muster.”

Income tax measures have been attempted over the years in Washington with little success. A graduated income tax was enacted by initiative in 1932, passing with about 70 percent of the vote. But it was thrown out by the state Supreme Court, which pointed to the state constitution’s call for uniform taxation on property. Voters have defeated subsequent attempts to amend the constitution for a state income tax, most recently in 1973.

Talmadge, also a former Democratic state senator who is considered a liberal, continued: “The proponents of a graduated net income tax in Washington have vociferously argued that these older cases are no longer viable, because they allegedly rely on United States Supreme Court precedent that no longer finds that income-based taxes constitute taxes on property….However, since 1993, the Washington Supreme Court has been confronted with cases in which the continuing validity of the ‘income as property’ cases was questioned and has rejected the argument…Based upon this authority, it is likely the Washington Supreme Court would find the tax created by Initiative 1098 is a property, not an excise, tax.”

The measure, championed by Bill Gates Sr., would tax couples with adjusted gross incomes greater than $400,000 annually, or incomes of more than $200,000 for individuals. Supporters say that represents the top 3 percent of earners in Washington. It also would cut the state property tax by 20 percent and increase the business-and-occupation tax credit to $4,800. The proposed initiative sets out two tax brackets. The first tax rate would be 5 percent of the portion of joint income that exceeds $400,000, or $200,000 for individuals. The tax would increase to 9 percent on the portion of income that exceeds $1 million for couples or $500,000 for individuals.

The state estimates I-1098 would generate $11 billion in state revenue over five years.

Sandeep Kaushik, a spokesman for I-1098, said Talmadge’s analysis was “not credible.”

“It is a campaign attack written by an attorney who now earns his legal fees working for some of the biggest opponents of 1098 – Talmadge is just doing their bidding in making this claim. Hugh Spitzer, one of our state’s most respected experts on the Washington State constitution, has reviewed Initiative 1098 and believes that it will be found constitutional if opponents challenge it in the courts.”

Talmadge responds: “Mr. Kaushik’s political hyperbole notwithstanding, I’m not involved in the campaign on the initiative, either for or against. I was asked to give my legal opinion and the opinion speaks for itself. The opinion sets forth the law on the income tax issue, as the law now stands. It would be my opinion regardless of who asked me to prepare it. As a legislator, I supported a constitutional amendment for an income tax. As a Supreme Court Justice, as I observed in my opinion, I took the position now advocated by the proponents of I-1098, i.e., that the cases holding that income is property under the Washington Constitution are no longer viable. That position was rejected by the Court in the Harbour Village case.”